The maximum FHA loan amount for San Diego County is currently $580,750 for a single family home, $743,450 for a duplex, $898,700 for a triplex and $1,116,850 for a four unit property. One of the ways is to finance the purchase using an FHA loan. One such requirement may be to verify the seller is not currently delinquent on the existing mortgage which would indicate a distressed sale, for example.īeyond all that, there are ways to finance a non-arm’s length purchase. Mortgage companies who offer financing for a non-arm’s length purchase may have additional requirements. There is a form called an Identity of Interest questionnaire that literally asks what the relationship is between you and the seller. And to complicate the issue further, if indeed you bought a home that was $50,000 below market value if the IRS ever saw that it could be considered income beyond the annual gift-giving limits.
This isn’t to say that a non-arm’s length purchase is completely dead in its tracks, it’s just there will be additional requirements made in order for the loan application to be approved. “I practically stole this home from my dad, he sold it to me for $50,000 less than what his agent had it listed for!”Īny of these statements gives a clear indication the deal was not made at arm’s length.“My boss is letting me buy one of her homes at a ridiculous price.”.“You won’t believe what my brother just sold his property to me for!”.However, if the deal might be considered as “non-arm’s length” the value might very well be skewed. It’s through an independent evaluation with actual data of recorded sales that make for a proper appraisal.
The buyers would then have to decide if they want to come up with the additional $25,000 or walk from the deal entirely. Even if the sales price of the home were $350,000 and the appraisal came in at $325,000 the lender would use $325,000 as the value. The lender then uses the lower of the sales price or appraised value when establishing loan terms. Once the value is established, the report is returned to the lender. Various adjustments are taken into consideration such as one home having a view of the mountains or is located on a cul-de-sac compared to a home right on a very busy street. This is done by comparing recent home sales of similar properties in the neighborhood of the subject property. The appraiser then is charged to validate the sales price listed on the contract. For example, the seller might be in some stage of foreclosure and needs to close fast or a couple is getting divorced and the home is priced well below market in order to get rid of the jointly owned home and the mortgage that goes along with it.Ī mortgage lender who accepts a loan application accompanied by a sales contract the lender orders an appraisal. All things being equal of course and there is no outside influence that might force a seller to accept a below market offer.
When two parties sign a sales contract on a home, it is assumed the final sales price is where the most the buyer is willing to pay meets with the least the seller is willing to accept. Further, there could be such a differential between a true market price and the cozy deal the difference is viewed as a gift. In such transactions, it’s more difficult to establish the true market value of the home. A non-arm’s length transaction might be evidence of a conflict of interest. Instead of the mom working in her daughter’s best interest by lowering the sales price, an arm’s length transaction would mean the mom would deal in her own best interest and ask for the highest price possible. Because she’s her daughter, it’s very likely the sales price would be very, very attractive and not a price what an anonymous buyer would get. This ensures there is no favoritism the seller shows when establishing a sales price.įor example, let’s say a mother decides to sell her home to her daughter and move into a smaller home for retirement. Further, all parties in a real estate deal must also not have any formal or business relationship. It’s a transaction where both parties, in the case of real estate the buyer and the seller, are negotiating independently and have no familial relationship with one another. It’s a figurative term which means any deal made must be at arm’s length as it relates to negotiations. But to understand its meaning perhaps it’s easier to first get clear on what a non-arm’s length transaction is. It’s quite possible you’ve heard of this term but not truly understand what it means.
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